Infra companies in asset sale push

Drive to do so as debt costs rise; L&T, Jaypee, GVK, among others, may line up assets

Top Indian infrastructure companies such as Larsen & Toubro, Jaypee and GVK are looking at selling stake in several projects and subsidiaries this year, to reduce their finance costs, say bankers.

The GMR group has sold its stake in Istanbul airport for euro 225 million (Rs 1,910 crore). Bankers say Jaypee is looking at selling assets in its hydropower assets, while L&T will sell stake in its subsidiary, IDPL, and in the Dhamra port project this year. GVK has been looking to sell stake in its Hancock coal project in Australia since March last year.

“The sale of stake by infra companies will possibly increase this year, to reduce loan liabilities and cut interest costs,” says R K Dubey, chairman of Canara Bank.

On December 20, L&T told its shareholders that L&T IDPL (the infra development subsidiary) has applied to the Foreign Investment Promotion Board (FIPB) for approval of a foreign direct investment. The due-diligence process was yet to be completed. The company said the investor wished to put in an initial Rs 1,000 crore, followed by another Rs 1,000 crore or more in the next 12 months.

L&T is also in talks with the Adani group to sell its 50 per cent stake in the Dhamra port project in Odisha but the transaction is stuck due to objections by the state government.

Bankers say apart from funding problems of the infra companies, projects worth Rs 15 lakh crore are stalled due to lack of environmental clearance, land acquisition problems, and the economy’s slowing. Sector-specific problems, as in the power and iron ore sectors, has further slowed orders. With finance costs rising, bankers have raised questions on how many infra companies will be able to repay their loans.  Hence, they’re nudging companies to sell assets to reduce debt and finance costs.

A JP Morgan report dated December 16 says infra companies at large need balance sheet repair and a dose of equity infusion. ”If the status quo prevails, quite a few listed infrastructure asset owners might have to contend with severe cash flow challenges. Local fuel shortages (particularly gas) and SEB (state electricity boards’) balance sheet repair are time-consuming issues to resolve. Capacity utilisation levels of cement, metal, and hydrocarbon plants need to pick up to trigger fresh capex,” it said.

Bankers say Delhi-based Jaypee Infratech is looking to sell stake in some hydro projects and in its cement plant to reduce high debt. “The high cost of debt is making almost all infra companies either sell assets or go for debt restructuring,” says a banker. “This year is going to be the year of infra companies selling assets.”

The GVK group, set to open a swanky airport in Mumbai this week, is also looking to sell minority stake in its Hancock coal mines but no final decision has been taken, say bankers.  

The time ahead look difficult. Analysts say the Planning Commission’s ambitious 12th Plan target for 2012-17 on infrastructure capex, of $1 trillion, factors in average GDP growth of 8.2 per cent a year annually. This needs adjusting, due to a slowing economy. With average GDP growth of five per cent annually in the first three years of the current plan and assuming acceleration to seven per cent over FY16 and FY17, analysts estimate a 33 per cent slippage from the target.